Category: Power purchase agreements (PPAs)

Free power to farmers – a sham, nothing to glorify

The government of Telangana has decided to give 24×7 free power to all farmers in the state from January 1, 2018. A member of parliament [MP] from Telangana Rashtra Samithi [TRS] – the ruling party in the state –  wanted the prime minister, Modi to recognize this singular achievement that has never been seen before in any other state. The union minister for railways and coal, Piyush Goyal even while  respecting the decision of state government [in deference to the federal character of the constitution] nonetheless advised the latter to make adequate provision in its budget to subsidize the losses resulting from its decision to supply free power. What Goyal was alluding to requires elucidation. Assume that the power consumed...
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Electricity reforms – missing the wood for the trees

On the eve of a meeting with state power ministers to discuss comprehensive reforms in the power sector, in a free-wheeling interview with a leading business daily, union power minister, RK Singh has come up with four ideas viz. (i) cross-subsidy will be restricted to 20% from fiscal year 2019-20; (ii) tariff hike to cover losses of state electricity boards [SEBs]/power distribution companies [PDCs] will be capped at 15% from April 2019; (iii) innovative measures to reduce technical and commercial [T&C] loss of SEBs/PDCs and (iv) direct benefit transfer [DBT] of power subsidy. If, the multitude of problems facing the power sector including huge recurring losses of SEBs/PDCs could be solved by issuing diktats, this could have been achieved long ago. During...
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Power reforms – piecemeal measures won’t work

The union power minister, RK Singh has convened a meeting of state power ministers to discuss comprehensive reforms in the power sector to discuss among others measures (i) to uphold sanctity of power purchase agreements [PPAs] between generators and state electricity boards [SEBs]/power distribution companies [PDCs]; (ii) curbing wasteful electricity consumption; (iii) remove cross-subsidy surcharge and  (iv) direct benefit transfer [DBT] of power subsidy. Before discussing the reforms at the outset, it is important to take cognizance of the problems facing the sector and the source of their origination. First, SEBs/PDCs, the life-line of power sector are incurring huge losses – a phenomenon seen for over two decades. Unable to make timely payments to power generators – public sector undertakings...
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Cheaper power to SEBs – let center not act spoiler

For India now progressively moving towards an energy use configuration that is environment friendly [increase in share of non-fossil fuel such as nuclear, solar, wind, hydro etc], a steep decline in the cost of power generation based on solar and wind to level even below Rs 3 per unit – enabled primarily by reduction in the cost of equipment and services – has come as a boon. The state electricity boards [SEBs]/power distribution companies [PDCs] are keen to be a part of this transition and would like to procure power at a lower rate so that this benefit can be passed on to consumers. Besides, this will also help them in reducing losses and make their operations financially sustainable so...
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DBT-Power – It’s a non-starter

Recently, during an interactive with a leading economic daily, union power secretary, Ajay Kumar Bhalla gave an indication of the government’s intent to launch direct benefit transfer [DBT] for giving power subsidy. Alluding to a clutch of pilot projects for DBT-Power to be launched soon, he exuded confidence that this will help in curbing wasteful electricity consumption, limiting power subsidies to really needy and denting losses of state electricity boards [SEBs]/power distribution companies [PDCs]. It will also help bring down current hefty tariffs charged from industrial customers. The move is prompted by DBT success for giving LPG subsidy and similar initiatives for fertilizers and foodgrains. Has the idea yielded desired outcomes in LPG? Has it really been kicked off in other...
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SEBs woes – generators can’t escape blame either

Recently, Yogi – government in Uttar Pradesh [UP] cancelled a number of power purchase agreements [PPAs] that were signed in the past by state electricity boards [SEBs]/power distribution companies [PDCs] with independent power producers [IPPs] under MOUs [memorandum of understanding] route. The reason given was that cost of purchasing power under these agreements was substantially higher [in some cases even double] than the average cost of purchase @ Rs 4 per unit. In view of surplus availability of power in the state, the government hopes to lower overall cost even while meeting all its requirements. In turn, this will help reduce losses of SEBs/PDCs in the state. The galloping loss of SEBs/PDCs [as on September, 2015, their accumulated loss stood...
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UMPPs – stop treating generators with kid gloves

When, subsidies and in turn, fiscal deficit gets out of control, the eyes of the whole nation are set on it and all institutions, experts and financial wizards frantically look for steps to set things right. But, when it comes to dealing with factors that cause hike in subsidies/deficit, everyone turns a nelson eye; instead of taking corrective measures, they abet actions to perpetuate the malady. The case of ultra mega power projects [UMPP] vividly illustrates this. Tata Power Ltd [TPL] and Adani Power Ltd [APL] had bagged such projects 4000 MW and 4620 MW respectively under tariff-based competitive bidding [TBCB] to supply power at fixed tariff all through project’s operational life. The tariff in case of Tata was Rs...
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UDAY – no panacea for SEBs woes

One of the major accomplishments of Modi – government during its two years stint has been in alleviating the constraints facing power generation companies/entities. It has done so by increasing production of coal by Coal India Limited [CIL] and filling all voids in the evacuation, transportation and distribution infrastructure to reach supplies to generating stations. It has also helped gas based power plants by arranging supplies of gas at lower rates enabled by pooling of imported LNG [liquefied natural gas] with cheaper domestic gas. The cost of LNG itself has been brought down drastically by re-working an existing long-term 25 year contract with RasGas [Qatar] to align the formula with its low current international price [courtesy, low crude price]. It...
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It’s all just power play

Electricity boards and consumers are being systematically short-circuited by the robbing-Peter-to-pay-Paul policy Tata Power Ltd bagged a 4000 MW ultra mega power project based on imported coal in Mundra, Gujarat, under tariff-based competitive bidding to supply power at fixed tariff of Rs. 2.26 per unit all through the project’s operational life. Likewise, Adani Power (APL) bagged a UMPP to supply to Gujarat and Haryana at Rs. 2.35/Rs. 2.94 a unit. In April 2013, the Central Electricity Regulatory Commission (CERC) allowed compensatory tariff(CT) of Rs. 0.524 per unit to TPL for all its buyers. APL was allowed CT at Rs. 0.851 per unit and Rs. 0.364 per unit for supplies to Gujarat and Haryana, respectively. The CT was meant to neutralise...
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Power conundrum – robbing Peter to pay Paul

In April, 2013, Central Electricity Regulatory Commission (CERC) in its interim order, allowed a ‘compensatory tariff’[CT] of Rs 0.524 per unit to Tata Power Ltd (TPL) 4000 MW ultra mega power project (UMPP) based on imported coal in Mundra, [Gujarat] for all its buyers. Likewise, for Adani Power, UMPP [4620 MW] it allowed CT of Rs 0.851 per unit and Rs 0.364 per unit for supplies to utilities in Gujarat and Haryana respectively. The CT was meant to neutralize increase in price of imported coal consequent to decision of Indonesian Government in September 2011, imposing a minimum ‘benchmark’ price below which coal cannot be exported. Not quite satisfied with the quantum of relief given by CERC, the Adani/Tata petitioned the...
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